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By Joshua A. Steinberg, Kaplin Stewart Landlord subordination agreements: Short is not always sweet
W
ordinating your interest in the property rather than waiving it, you permit the lender to exercise its rights with re- spect to the property before you exercise yours, but you maintain your rights therein. - Limit the period during which a lender is permitted to enter the tenant’s premises after the term of the lease ends. Generally, lenders are limited to forty-five or sixty days after a lease ends to enter the premises to remove any property in which it has an interest. During this pe- riod you will be unable to remove the tenant’s prop- erty. Therefore you will be unable to re-lease the space. Consider including language that states if the lender fails to remove any property by a given date, the lender will be deemed to have abandoned such property. This will pro- vide you with certainty as to when the lender must remove such property. - Finally, make sure the agreement requires that the lender pays you rent, includ- ing basic rent and additional rent, otherwise due from the tenant under its lease, for any time that you are not able to re-lease the space be- cause of the presence of the tenant’s property. Without such a provision, you may be left with otherwise rent- able space which you cannot lease. Therefore, you would be required to pay expenses and taxes otherwise payable by the tenant, until the lender removes the collateral. When considering the terms of a landlord subordination agreement, remember that the shorter the agreement you receive from a lender, the less likely it will protect your interests as landlord, and the more likely you will be crying all the way to the bank (or other lender). Joshua A. Steinberg is a member of the Real Estate Transactions and Cor- porate & Business Law groups at Kaplin Stewart. Mr. Steinberg’s practice focuses on the representa- tion of sellers and buyers, landlords and tenants and developers and investors in various commercial real estate transactions. You can reach Joshua Steinberg at 610.941.2559 or by email at jsteinberg@ kaplaw.com. n
e have all heard the cliché, “keep it short and sweet,”
by tenants and their lenders. Typically, lenders request these agreements to ensure that the lender’s security in- terest in a tenant’s property, such as furniture, equipment, or inventory, is protected and superior to any interest a landlord might have in that same property. Sometimes a tenant will send a landlord a short agree- ment that has already been signed, with a note that says “My lender asked that we sign this short agreement. Can you please execute?” The agree- ments generally are short for
a reason: they include only the provisions the lender needs to protect its, not the land- lord’s, interests. The terms of the agreements, however, are negotiable even if your tenant has already executed the agreement. You should not hesitate to inform the tenant that the terms must be negotiated. Typically, the lender will ask the landlord to (i) sub- ordinate or even waive any interest you have in the ten- ant’s property, and (ii) allow the lender to enter onto the tenant’s premises (even after
the lease expires or is termi- nated) to remove any property in which the lender has an interest. From a landlord’s perspec- tive, the three most important concepts to include in these agreements in order to pro- tect the landlord’s interests are provisions regarding: (i) subordination; (ii) lender’s abandonment of the property; and (iii) rent, discussed below. - Do not agree to waive any interest you have in the tenant’s property. Instead, subordinate your interest to the lender’s interest. By sub-
and wh i l e it may ap- ply to greet- i n g c a r d s and g o od - byes, when it comes to l a n d l o r d subordina- tion agree- ments, short is not always sweet. Landlords are often asked to sign subordination agree- ments, or “landlord waivers,” Joshua Steinberg
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